If I have bought the Put Option: it means, I have the right to ‘Sell the underlying at the predetermined price when I want, if I want.
If the price of the underlying in the local (cash) market is lower than the pre-determined price, I will exercise my right to Sell using this Option (so I get a higher sales proceeds)
If the price of the underlying in the local (cash) market is higher than the pre-determined price, I will not exercise my right to Sell using this Option. And will sell in the local market at a higher price.
Example:
I have bought the put option:
Put Option to Sell share of ABC @ INR 50.
Underlying: Shares of ABC
Strike Price: INR 50
Price of the underlying in the local (cash) market is lower, say INR 40.
In this case, I will use my Put Option – as the price of the underlying (Shares), is lower in the cash market, hence I will prefer to sell using my Put Option. And the other party (seller of this Put Option) will have to buy from me at a higher price.
On the other hand, if the price of the shares in the cash market were INR 60, then I will sell in the cash market and not exercise my Option to sell at 50.
I will let my Put Option expire.